Looking at Small Medtech and Biotech in Canada: Nick
Source: George S. Mack,
The Life Sciences Report
Is there a developing Silicon Valley model in Canada? Not
quite yet, but Publisher and Founding Editor Nick Waddell of the
would like to see that happen. Meanwhile, he's looking for-and
finding-exciting small- and micro-cap ideas as potential big
returners. In this exclusive interview with
The Life Sciences Report
Waddell discusses current favorite healthcare names that will
surely surprise people who have not been looking North.
The Life Sciences Report:
If you're looking for great technology stories, why limit
yourself to Canadian-listed stocks?
I would describe it as an invest-in-what-you-know approach. I
think many investors, especially newer ones, can be overwhelmed
by the sheer size of the equities market, and people end up being
intimidated by the sheer amount of data out there. My approach is
to divide the market into small sections, whether by geographic
region or by sector, and to find value there. That way, instead
of examining thousands of different investment vehicles I can
narrow the market down and know it like the back of my hand.
You are an online publisher. In April two online publications won
Pulitzer Prizes. Where does the online format go from here?
It's an interesting question. I've been involved with publishing
on the Internet since the early days. I was part of a site called
The Canadian Stock Market Reporter
back in 1994, which was one of the very first profitable sites on
the Internet. I've remained involved and watched it evolve. Now
it has become a part of the fabric of our everyday lives. I've
written for both print and Internet, and there are advantages to
each. But ultimately I think the advantages of the Internet lend
themselves well to niche interests and niche sites, and that's
how it will continue to evolve. However, that makes me worry a
little about general interest publications and where they're
going, because I think they're extremely important.
You hosted a roundtable on the topic of the Canadian government's
role in fostering technology. My impression is that you have a
generally negative view of your government's management-or lack
of management-of incentives. What are the issues and what might
the solutions be?
I wouldn't characterize my view as entirely negative about the
government. But I don't want the government's hand in everything.
The dangers of large government can be seen in Greece, where the
government is triple the size of the Canadian government.
I do believe government should find ways to foster and
encourage private industry and technology. Specifically we should
be learning from the U.S., where technology, more than any other
industry, is being developed in physical clusters. The biggest
example is, of course, Silicon Valley. In Canada we don't have a
Silicon Valley equivalent, but we've had two tries at it. The
first was in Ottawa, where the entire thing blew up with the
demise of Nortel Networks Corp. (NRTLQ:OTCPK). We have gotten a
second chance with Research In Motion, which has fostered a
Silicon Valley-style culture around the Kitchener/Waterloo area
in Ontario, especially now with the arrival of Google Inc.
(GOOG:NASDAQ) and Microsoft Corporation (MSFT:NASDAQ).
What should government be doing?
The Canadian government is overly focused on oil, gas, minerals,
grain and wood, because these industries contribute to the tax
base at the present time. I think it should be more concerned
with moving Canada up the technology value chain and in leveling
the playing field. We have some incentives, like the flow-through
shares (FTS) program, which allows startup companies not
currently earning taxable income to convey deductable expenses to
shareholders. The program is available to mining and other
resource industries in Canada, but we don't have it for
Recently, at the World Economic Forum in Davos, Switzerland,
there were some encouraging signs when Prime Minister Stephen
Harper talked about lagging research and development in Canada
and about implementing some of the recommendations from a report
called "The Review of Federal Support to Research and
Development," which was produced by a group led by Open Text
Corp. (OTC:TSX; OTEX:NASDAQ) Chairman Thomas Jenkins. The report
concluded that government spending in Canada was outdated,
needlessly complex and should be changed to more of a U.S.-style
system in which there is direct investment into technology rather
than through tax incentives.
The U.S. National Institutes of Health (NIH) makes grants to
academia and companies. Is that the kind of program you'd
Yes. More is needed. In the U.S. there is 5-10 times the amount
of direct investment per capita into technology than in Canada.
We are really lagging in terms of simple direct investment.
What about the Canadian government's deep interest and investment
in healthcare? Has that translated into innovation in
I think it has. But, again, I don't think that has been led by
government. The real center for innovation in healthcare in
Canada is Québec. It is one of three or four North American
centers for healthcare, life sciences and biotech. Every major
biotech company in the world has a presence in Québec. I believe
the government's role there is to support what private industry
has already built, and to find ways to communicate with the
industry about what its needs are. Often it comes back to direct
investment, rather than tax credits.
Do you find Canadian CEOs to be risk averse to development of new
That's an interesting question. I would have to defer to the
people who've done the studies and surveys. A number of different
firms have looked at this. Maybe Canadians are a little bit more
risk averse than Americans, and this always comes up in
comparisons. There may be a grain of truth in that.
A Canadian guest visiting in my home in the U.S. told me that one
reason for the business development lag in Canada is the weather.
People don't want to go there because of the cold. Does that
assertion hold water?
I've heard that. Certainly no one is going to be attracted to
Ottawa for the weather. If a similar salary or incentive is being
dangled for a job in Menlo Park versus Moose Jaw, that becomes a
pretty easy decision if you have no previous links to either
place. These are challenges that we have to overcome in Canada.
It is what it is.
You've written about some interesting Canadian healthcare
companies. I would like to hear your thoughts.
I've been made aware of a group of medical device companies
nearing commercialization of their products. They are intriguing
to people who have an interest in biotech or life sciences but
aren't prepared to sit around and wait for clinical trials or
U.S. Food and Drug Administration (FDA) clearance.
In other words, opportunities where you don't have to wait 10-15
years to get to market.
Exactly. There are three companies in particular that I've met
with recently, and three others as well.
I recently met with the management of
CRH Medical Corp (CVE:CRM.V)
. This company is comprised of many of the same people who were
part of a very large local success story here in Vancouver called
ID Biomedical, which was bought by
for $1.7 billion (
). ID Biomedical was very successful in developing influenza
vaccines. Management took that company through from beginning to
end, and nobody is going to have a problem with a $1.7B payday
for 10-12 years of work.
In this next effort as a team, the people at CRH Medical
specifically looked for something that was ready to go to market,
and they acquired the O'Regan System, which is the first patented
single-use, 100%-disposable product for hemorrhoids. It is a
banding technology invented by laparoscopic surgeon Patrick J.
O'Regan. It only takes a minute or less of the physician's time
to band a hemorrhoid, and it does not require any advance
preparation for the patient. CRH is out of the gate with this,
and the company has posted three consecutive profitable quarters
already. This is a management team with a history of success and
a product that is already in the market and profitable.
Single use means recurring revenues. It's interesting from that
What about another company?
I recently met with
Verisante Technology (VRS:TSX.V)
, which has developed a skin cancer detection device called the
Aura. It uses Raman spectroscopy to biochemically analyze the
skin to detect melanoma, and basal cell or squamous cell
carcinomas. This is all done non-invasively, and the results are
immediate. It is already approved in Australia, Europe and here
in Canada. The company has deep ties to the Department of
Dermatology at the University of British Columbia, which is a
world leader in skin cancer research. Verisante is rolling the
product out in Canada within the next six weeks, and we are right
on the cusp of Aura's entrance into this market. The device sells
for $60,000 (60K), and revenue could come quite quickly.
What's the value proposition for the dermatologist?
The big market for Verisante is Australia, where the incidence of
skin cancer is much higher, and the value proposition for
dermatologists is very compelling because they can charge
$200-500 for a screening. It doesn't take very long to recoup
their investments when they're seeing as many as 50 patients a
That's the way dermatologists like to work, seeing each patient
for just a few minutes?
Exactly. This device works in seconds, literally.
And a positive screen means an immediate biopsy.
Yes. Of course, the only way to determine with precision that the
cells are cancerous is through a biopsy, but if you have 100
moles on your back this will point you to the ones that should be
Is there another company you could mention?
The next two companies are in a very interesting space that is
gaining a foothold right now-robotic surgery. The two companies
are completely different. One is
IMRIS Inc. (IMRS:NASDAQ)
and the other is
Titan Medical Inc. (TMD:TSX.V)
. The market estimates I have for robotic surgery total about $1B
now, but it is set to grow by $1B every year for the next five
IMRIS is an already established company in the magnetic
resonance imaging (MRI) department. The company has 43 patents
around MRI systems. The technology is intraoperative fluoroscopy
and magnetic resonance used together. IMRIS is just getting into
the robotic surgery market, but it is in partnership with a well
established Canadian tech company,
Macdonald Dettwiler & Associates Ltd.
. You have IMRIS, a company with an established base market
reduced risk and the upside of a market that is growing by leaps
and bounds. You also have the comfort of having an established
partner like MacDonald Dettwiler.
These are operating room suites for intraoperative visualization,
Can you talk about robotics company Titan Medical?
Titan just listed on the TSX Venture Exchange this year. The
company has an exclusive license agreement with Columbia
University for its technology. The real upside and benefit of
Titan lies in its claim that its robotic surgery system is the
world's smallest in terms of required diameter to enter the body,
while still maintaining full manipulation capabilities. Its
Amadeus Robotic Surgical System is
-type technology. Surgeons are able to perform surgery remotely
and can seamlessly switch between local and long-distance
This is still development stage, correct?
It is, yes.
A lot of people think of Calgary and the rest of Alberta as an
oil- and gas-only domain, but there is a lot of technology going
on in Calgary.
Ventripoint Diagnotics (VPT:TSX.V)
is an example of this. It has a 3D diagnostic system for
examining the heart, which is an alternative to traditional
methods such as MRIs and can increase the speed of diagnosis by
as much as 20 times. One of the real benefits of VentriPoint is
that it can use existing 2D or 3D imaging equipment that's
already found in most hospitals. The system can be added with
software and a tracking sensor system. Anatomical information can
be identified by connecting dots on the heart to form a more
realistic and specific image than existing MRI systems can
This is a noninvasive diagnostic for detection of pulmonary
arterial hypertension. Is that right?
Was there one more you wanted to mention?
Zecotek Photonics Inc. (ZMS:TSX.V; W1I:FSE;
is a Vancouver company involved in the use of scintillation
crystals. It's not a pure medical device play, but the company
has developed applications for 3D TVs and creative applications
for screening devices in airports. But it can also use these
scintillation crystals in medical imaging and industrial
applications because the micropixel photodiodes can replace the
current vacuum tube-based phototubes in positron emission
tomography (PET) scanners. It provides real-time anatomic and
metabolic images using enhanced diagnostics. PET scanners, the
last time I checked, cost about $1 million (
) per unit. As I said, it's not a pure play medical device story,
but it could be very big. There are performance advantages that
include making the scanners faster and getting higher
One might think of the PET scan section of the business as a free
call option, because you would only pay $34M to buy this company
today. A $1M per installation price tag could really move
Steven Palmer of AlphaNorth Asset Management is a fund manager
here in Canada. Your readers will be familiar with him from
your last interview
. Steve's a big proponent of Zecotek because he thinks that the
multiple initiatives could each have a significantly positive
impact. He believes that the company's 3D technology, which does
not require 3D glasses, could be worth $100M, and he believes the
laser division could be worth another $100M, but that the upside
potential of this company could be much, much higher than the sum
of its parts.
Palmer is looking at Zecotek as a 10- or 20-bagger.
Exactly. He also thinks the value of the current lawsuits that
the company has filed, which defend its technology, could be more
Nick, I've enjoyed meeting you.
Thank you very much.
is Founding Editor of
Founded in 2008,
is an online magazine focusing on Canadian-listed technology
stocks. The site has grown into one of the most popular and
respected financial sites in Canada, and was recently described
Canadian Business Magazine
as "one of Canada's premier technology newsletters." Waddell,
who is senior editor, is routinely called on by the mainstream
media for perspective on Canadian tech stocks, and has been
featured on BNN as well as the CBC program
The Lang and O'Leary Exchange.
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1) George Mack of
The Life Sciences Report
conducted this interview. He personally and/or his family own
shares of the following companies mentioned in this interview:
2) The following companies mentioned in the interview are
The Life Sciences Report:
Zecotek Photonics Inc. Streetwise Reports does not accept stock
in exchange for services.
3) Nick Waddell: I personally and/or my family own shares of the
following companies mentioned in this interview: None. I
personally and/or my family am paid by the following companies
mentioned in this interview: Zecotek Photonics Inc. and Verisante
Technology Inc. I was not paid by Streetwise Reports for
participating in this story.
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